We reported on the High Court case of BNY Corporate Trustee Services Limited v Eurosail in August 2010 and last week's Court of Appeal decision provides further important guidance on the interpretation of the balance sheet insolvency.

While the construction press seems to be full of speculation over which contractors are currently facing financial difficulties, coverage in relation to consultants' insolvency seems relatively minimal.

The recent Court of Session case of Tayplan Limited (in administration) v Smith, is particularly interesting as it is a case where the administrator chose to pursue directors for breach of fiduciary duties rather than using any of the more common statutory remedies.

The Facts

Tayplan Limited was a family business with two directors - Mr Smith senior and Mr Smith junior. Mr Smith senior and his wife each held 50% of the shares in the Company.

OTG v Barke1 is the most recent judgement by the employment appeal tribunal (EAT) on whether the Transfer of Undertakings (Protection of Employment)  Regulations 2006 (known as 'TUPE') apply to sales by companies in administration under schedule B1 to the Insolvency Act 1986.

Corporate Debt Restructuring through a Company Voluntary Agreement

In the current economic climate most businesses will experience temporary or longer term cash flow pressure resulting in stressful trading and creditor pressure.

Since the Transfer of Undertakings (Protection of Employment) Regulations 2006 were made in order to implement the European Union’s Council Directive 80/987/EEC, there has been an ongoing debate on how regulation 8 (7) (the bankruptcy proceedings exception) should be interpreted. Fortunately, a recent decision by the Employment Appeals Tribunal has gone some way towards clarifying the issue.

Last week the Employment Appeal Tribunal ruled in five conjoined appeals that TUPE applies in all administrations, since they constitute "relevant insolvency proceedings" and not "liquidation proceedings". This will be the case even in “pre-pack” administrations, where a business is placed into administration but immediately sold to a purchaser who has been lined up to buy the business beforehand.

In this case, a liquidator had commenced proceedings against the former director of a company in relation to transactions which were alleged to have been made at an undervalue and/or with an intention to defraud creditors and/or which were preferential. It was also alleged that the former director had acted in breach of his fiduciary duties in procuring or permitting the transactions to take place.

The Employment Appeal Tribunal (EAT) held in OTG Ltd v Barke (2011 UKEAT) that TUPE will apply to transfer employees when a company goes into administration, including on a pre-pack administration. This decision overturns the leading case of Oakland v Wellswood (Yorkshire) Ltd, which found that TUPE did not apply to "pre-packs".

Lehman Brothers Special Financing Inc.’s pending appeal against the judgments of the UK High Court and the Court of Appeal in the so called “flip clause cases”, concerning the enforceability of flip clauses, is scheduled to be begin with Belmont Park Investments Pty Limited (Belmont Park Investments Pty Limited v BNY Corporate Trustee Services Limited and Lehman Brothers Special Financing Inc (UKSC 2009/0222)) on March 1, 2011.